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Wait for 70 for Social Security

Written by: Brian O'Connell03/27/13 - 7:00 AM EDT

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NEW YORK (TheStreet) -- Maxing out on your Social Security benefits is a pretty big deal, considering that the No. 1 fear among retirees is not having enough cash to live on all the way through retirement, according to a study by Prudential Financial.

That study says Social Security accounts for about 40% of all retirement benefits, yet most retirees "never focus on how to help maximize the very benefits that may help sustain them throughout retirement."

For a number of reasons, "It's best to delay" getting benefits, says Dan White, founder of the Philadelphia-based financial advisory firm Daniel White & Associates.

"For every year you wait
before turning 70
, your income can go up," White says. "Most people start drawing Social Security earlier than what is ideal for them."

Ted Sarenski, a financial planner and member of the American Institute of Certified Public Accountants's National CPA Financial Literacy Commission, says Americans approaching retirement age should "run the numbers" and find out what they're gaining and losing with their Social Security strategy.

"Statistically, two-thirds of all people begin their own benefits at age 62," he says. "This results in a 25% reduction of what they would get per month at age 66. If the person still wants to work from age 62 to age 66 they are limited to $15,120 of earnings in a year or have to give back to Social Security $1 for every $2 they earn over that limit."

White agrees "It's best to wait it out and bridge that five-year gap" to age 67, and there are several ways to to delay drawing benefits until then.

"A 401(k), investments and other retirement accounts may be better used if they bridge the gap between retirement and a later start to social security," he says, warning that married couples should take special precautions. "Couple must plan for retirement together -- even if they will time their individual retirements differently -- in order to maximize benefits."

A good Social Security calculator can help near-retirees figure out what will work best for them. Try the step-by-step online calculator from T. Rowe Price that not only covers "how and when" but adjusts for your personal financial situation.

The Prudential study also advises near-retirees to factor in the impact of taxes before making decisions on Social Security withdrawals. Upon retirement, income from individual retirement account withdrawals can lead to Social Security benefits being taxed. The solution? Prudential advises reducing your taxes by choosing higher Social Security income and lower IRA withdrawals.